Abu Snina Writes on the Methodology of Measuring Deficit or Surplus in the Balance of Payments

Financial expert Mohamed Abu Snina wrote an article in which he stated:

Several posts on Facebook discussed the statement of the Central Bank of Libya regarding foreign currency revenues and expenditures from January 2025 to the end of August 2025. The authors of these posts expressed observations and reservations about the numbers included in the statement and the conclusions drawn from them.

I am not here to evaluate the accuracy of the figures, as commentators and analysts have already invested significant effort in this regard, nor do I intend to dispute the findings or question the data. I simply wish to highlight two important points: the first concerns the methodology for determining a deficit or surplus in the balance of payments, based on the figures presented by the Central Bank of Libya, and the second concerns the sources of foreign currency that should be included in total foreign currency revenues during the period, which require greater transparency and disclosure by the entities that generate foreign currency—either because they manage assets denominated in foreign currency or because they have export activities or foreign investments that generate foreign currency distributions.

Regarding the methodology of measuring deficit or surplus in the balance of payments, it is important to note that the balance of payments records all international commercial and financial transactions conducted by residents of a country during a specific period. It consists of three components: the current account, the financial account, and the capital account. Typically, the deficit or surplus in the balance of payments is measured annually or quarterly, not monthly, in order to have economic significance. Monthly data may not reflect the full picture, as payments or transfers may be in transit or deferred to a later period. Therefore, comparing net foreign currency flows from month to month has limited economic value, as a surplus can quickly turn into a deficit and vice versa. Economic policies cannot be established or adjusted monthly based on the balance of payments. The reported figures are merely cash flows that need verification before they can be accepted as results of economic activity.

As for foreign currency sources and their uses in the economy, they are part of the current account in the balance of payments, which measures international trade (exports and imports), net income on investments, and direct payments. Here lies the need for transparency and disclosure—the crux of the matter.

In Libya, focus has traditionally been on foreign currency revenues from oil and gas exports as the main income source, often neglecting other foreign currency sources. These other sources should also be recorded as inflows in the current account, thereby affecting the balance of payments.

Among the key sources of foreign currency are the returns on the Central Bank of Libya’s investments, including managed investment portfolios, treasury bonds, and time deposits with foreign banks. These are considered part of foreign currency revenues. The Central Bank also has foreign currency expenditures. At the end of the fiscal year, it pays dividends to the Ministry of Finance in the form of profits. Net profits should be recorded in the current account, while expenditures from the bank’s foreign currency resources or reserves should also appear in the current account. In other words, foreign currency resources held by the Central Bank or any other public or private institution should be shown alongside oil revenues, and any foreign currency expenditures for imports or overseas payments should also be recorded in the current account. Transactions related to goods exports or imports are recorded in the trade balance within the current account.

Another important source of foreign currency is the profits and returns from the Libyan Investment Authority’s portfolio, including the Libya Africa Portfolio, the long-term investment portfolio, and the Libyan Foreign Investment Company, which should channel their profits as distributions to the Treasury. Additionally, the Libyan Foreign Bank manages various international investments, and their results and distributions should be accounted for as profits to the Central Bank of Libya within foreign currency revenues during the period. In general, all Libyan foreign investments should be disclosed and included in foreign currency revenues alongside oil revenues. If no profits are realized or remitted, their value should be recorded as zero. Revaluation gains may be used to offset deficits depending on the accounting policies and asset evaluation schedule of the institution, but book profits do not cover actual losses.

Transparency requires presenting the current account of the balance of payments with its various components from time to time to assess the real economic situation and guide policy accordingly. Without this, the situation remains unclear, interventions are partial, and results are limited.